This year my taxes are as simple as they get. My gross pay for wages and over time was $81,704 reported on my W2. I have no other income to report (my spouse was unemployed for the entire year of 2020 and longer). Obviously I was taxed on that gross pay and the appropriate taxes were withheld from each paycheck. My total Federal Withholdings on my W2 were $5,606.
When calculating my taxes I am taking the standard deductions for Married filing jointly, this reduces my taxable income to only $56,940. According to the tax table my taxes due for a taxable income of $56,940 is $6,432.
Luckily I have children so I can take advantage of the Child tax credit which leaves me with a nice refund, however this got me thinking to hypothetically if I did not have children (or when I can no longer claim them as dependents). If there was no child tax credit I can claim, I would end up owing $830 instead (6432 tax due less the 5606 already withheld).
My question is that, if federal taxes were withheld from my paycheck based on my gross pay of ~$82,000, but after the standard deductions my taxable income is ~$25,000 less, why would the taxes due on the lower income be more than what was already withheld based on the higher income? My W4 is stated as Married with 5 allowances. Perhaps I have my allowances set too high? I calculated 5 based on myself, my spouse and our 3 children.
